Credit unions seem to be shaping up to become a decent alternative to payday loans and other loan-granting services. These are non-profit organizations grant loans at lower interest rates compared to payday loans.
Credit unions are governed by their members, who actually own them. Ownership structure is what makes them different from traditional banks. As to products and services, which they provide, they are pretty similar to banks’. Thanks to flexible approaches and less extortionate rates, credit unions have been increasingly popular since the 2008 crisis.
Credit union loans are very different from payday loans that provide quick money at pretty hight rates, which have become a cause of indebtedness for many borrowers.
Fortunately, the Consumer Financial Protection Bureau (CFPB) has outlined and introduced some guidelines, which allow for loan options that are similar yet alternative to traditional banking services. Most important, it paves a number of ways other than payday loans for those in need of cash. It is one of the reasons why payday loans now look less attractive to customers.
First, a credit union loan is a good chance for those who have poor credit record or none at all. In order to apply for a credit union loan, one should:
- Choose a union
- Apply for membership and eventually join it
- Apply for a loan
Most credit unions include members who share location, place of work, and even confession and hobby. Unlike banks, they tend to be service-oriented than profit-oriented, and this is one of the reasons why they are less strict on those who have poor credit histories than banks. Credit unions do have hierarchy, just like any other organization: particularly, they have managerial staff (board of directors). However, unlike banks and payday loan organizations, unions do not pay salaries to managers, who run them because they have a knack for that.
Back to interest rates, they average 11.5%, while banks rates average 12.7%. Although the difference does not look too big, there is something that matters pretty much. For example, if you have borrowed $3,000, it will take almost the same amount of time for you to pay it off at 12.7% with a bank and 11.5% with a credit union. This is considerably lower than with payday loans.
Credit unions’ activity is regulated by CFPB, as well as other regulators (OCC, FDIC, NCUA, etc.), which outline and promote rules for banks and credit unions. These rules should regulate the size of monthly payments. For example, one of these rules requires that a monthly payment should not exceed 5% of an individual’s monthly income. There is statistical evidence that most customers consider terms set by credit unions and banks much more fair and acceptable than payday loans.